Malaysia faces challenges as top Asean destination for data centre investments

[KUALA LUMPUR] Even as Malaysia has emerged as the most attractive country in South-east Asia to invest in data centres, observers say the government and the private sector need to raise their game to maintain this lead in the face of growing competition from the region.

In April this year, property consultancy Knight Frank listed Malaysia as the top destination for data centre investment of the so-called “South-east Asia 5” group of countries, followed by Thailand, Indonesia, Vietnam and the Philippines.

Malaysia had 113 megawatts of data centre take-up in 2022, more than four times greater than the next highest market, Thailand.

According to data from market research firm Arizton, Malaysia’s data centre market was estimated to be worth nearly US$1.1 billion in 2021. This figure is expected to grow by almost 50 per cent to reach US$1.6 billion by 2027.

In March this year, Amazon Web Services (AWS) – the cloud computing division of Amazon – announced that it will invest US$6 billion in Malaysia over a 14-year period to grow its cloud services infrastructure in the country. The investment is part of AWS’ plan to build what it terms “infrastructure regions” across South-east Asia, with these infrastructure hubs allowing customers to store data more securely.

Looking at the region as a whole, industry reports say the data centre market in South-east Asia is expected to expand at a compound annual growth rate of 13-15 per cent from 2021 to 2026.

YY Lau, the country head of JLL Property Services in Malaysia, said Malaysia is up against many “strong competitors with unique offerings” for foreign investment in data centres.

Singapore is one of those making headway in the sector, although analysts noted how the government’s three-year data centre moratorium from 2019 to 2022 to better manage the growth of data centres resulted in some overseas investments shifting to Malaysia, in particular the southern state of Johor.

“(Building a data centre in Johor) allows businesses to have a presence near Singapore’s established data centre ecosystem, while enjoying cost efficiencies and expanding their operational capabilities,” said Knight Frank Malaysia’s head of valuation and advisory (Asia-Pacific), Justin Chee.

Among the big players that have built data centres in Johor are Bridge Data Centres, Yondr Group, Wuinix and ByteDance System. Official data showed that Johor will be securing a total investment of RM17 billion (S$4.9 billion) in 2024.

Besides Malaysia, AWS has also been active in Thailand, announcing a US$5 billion investment last year to set up a new cloud region.

Over in Vietnam, the government’s new data localisation rules that now require domestic and certain foreign companies to locally store personal data have spurred data centre investments there. Arizton’s data showed that Vietnam’s data centre market is expected to soar past the US$1 billion mark by 2028, from US$561 million in 2021.

As for Indonesia, investors regard it as an attractive market given the large population and high digital adoption and Internet penetration rates, said JLL’s Lau.

And in the Philippines, investors are also looking to tap the government’s tax incentives to promote the digital economy. The country also has a highly skilled workforce with a high level of English proficiency, making it an ideal location for businesses which require support that is delivered in English.

“The competition in the region is intense,” said Chee, adding that there is a need for Malaysia to “level up” in order to keep its position as the top destination. This includes improving the business environment, offering more incentives and enhancing the digital infrastructure.

Chelwin Soo, the director of land and industrial solutions at Knight Frank Malaysia, said Malaysia has the chance to carve a niche for itself in data centre development by looking at green initiatives.

AIMS – a data centre operator and a subsidiary of Malaysian telecoms firm Time dotcom – recently introduced a battery-less system that makes use of the stored kinetic energy of a spinning flywheel, instead of the battery bank used by conventional power supply systems.

There are several other public and private collaborations in Malaysia that seek to power current and future data centres using renewable energy.

YTL’s new Green Data Centre Park in Johor is the first integrated data centre park in Malaysia to be powered entirely by solar energy. Over in Sarawak, the new Irix data centre will tap the state’s abundant hydroelectric power by connecting its power supply source to the Baleh Hydroelectric Dam by 2027.

“By shifting to renewable energy, data centres can significantly reduce their dependence on fossil fuels and decrease their greenhouse gas emissions,” said Lau.